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Opportunities remain, but market has to go beyond vanilla equity

Fri, Nov 14, 2014 - 5:50 AM

It is unfortunate that the Singapore stock market does not get the attention it deserves. There are still plenty of opportunities for smart retail investor money to make the first move, and reap the rewards when institutional firms recognise the potential.

PHOTO: SPH

IT IS unfortunate that the Singapore stock market does not get the attention it deserves. There are still plenty of opportunities for smart retail investor money to make the first move, and reap the rewards when institutional firms recognise the potential.

On Wednesday, China conglomerate Citic announced plans to take a majority stake in mainboard-listed water treatment firm United Envirotech, after working out a deal with the firm's current largest shareholder, private equity firm KKR. United Envirotech is not the first China-based, Singapore-listed firm to come under the appreciative eyes of institutional investors this year. Chongqing developer Ying Li International Real Estate was bought into by a subsidiary of asset manager China Everbright Limited earlier this year.

Meanwhile, local logistics packaging firm Goodpack was also acquired by KKR. Semiconductor testing company STATS ChipPAC is being taken over by a Chinese firm. In a weak market, big players are seeing opportunities and attractive valuations in Singapore stocks. This is both good and bad news for the market. The good thing is that there are plenty of stocks on the market that could spring to life when dealmaking fever hits them. The bad news is that with each privatisation, the market loses yet another firm that could have benefited retail investors for many years to come.

As the liquidity downturn persists, what is increasingly clear is how Singapore Exchange (SGX) can never compete head-on with exchanges in regional markets especially in Hong Kong and now, China. Hong Kong has a daily traded value 10 times that of the Singapore market, and the Shanghai Stock Exchange, even more. Both are likely to increase if the upcoming trading link between the two is launched smoothly. Even the Thai stock exchange sees value traded that is twice that of Singapore. SGX senior executives prefer to focus on how the market has integrity and how easy it is to raise capital. Despite their protestations, the buzz around big-name new listings in Singapore is, uncomfortably, conspicuously absent.

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It is time, however, for market players to move beyond lamenting this sad state of affairs. As the world gets engrossed in the Shanghai-Hong Kong trading link, there are a couple of ways the Singapore market can plan a way forward. The first is to focus on its core sector strengths and aim to become the best in the region, if not the world, in them. These include real estate investment trusts (Reits), shipping, offshore & marine, and commodities products. Each of these sectors offers investment opportunities beyond a vanilla equity stake. Business trusts or derivatives have room to grow here. Singapore's existing financial, manpower and infrastructural ecosystem around these sectors can be strengthened.

And then there is the burgeoning sector of crowdfunding to support a business idea. Currently, people pay small amounts to get a reward of some sort if the idea goes through. They do not get an equity stake in a business-minded startup. This can change once a viable regulatory framework is put in place by SGX. An equity crowdfunding platform is already supported by a reasonably vibrant startup ecosystem here. While it is not advisable for most retail investors to engage in what is essentially investing in risky enterprises with high failure rates and unproven leadership, having an equity crowdfunding mechanism in place will plug a gap in the local market. It might even get people interested in investing again. Singapore must keep finding ways to stay ahead of the world.